Canadian Tax Lawyer Analyzes Tax Voluntary Disclosure Programs Around The World – Part III: Canada Versus The UK

Posted: April 17, 2024

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This article series on the tax voluntary disclosure program includes 5 parts: Part I introduces the OECD framework and structures for tax voluntary disclosure programs around the world, providing a high-level overview; Part II delves into the voluntary disclosure program in Canada, examining the key elements of the program as well as its importance for Canadian taxpayers who are looking to correct their prior mistakes; and Parts III through V compares the voluntary disclosure program in Canada with similar programs in the United States of America, in the United Kingdom, and in countries within the European Union.

This is Part III of the series, which examines the similarities and differences between the voluntary disclosure program available in Canada and in the UK.

Introduction: The UK Tax System VS The Canadian Tax System

The Canadian tax system is a self-assessment based system, which relies on taxpayers to self assess and report their income on their tax returns. The Canada Revenue Agency (“CRA”), to ensure compliance, then selects a number of tax returns for tax audit each year. The CRA can randomly select a return for tax audit or can base their review based on a series of factors, including but not limited to the taxpayer’s prior tax-filing history, specific types of claims (e.g., deductions, credits, rebates, etc.), or returns related to a targeted audit (for example, the CRA has been targeting taxpayers who claimed CERB during the COVID-19 Pandemic since 2021.) If a taxpayer is eligible for a social insurance number (SIN) in Canada, the taxpayer must apply for a SIN and file taxes using the SIN. If a taxpayer does not qualify for a SIN, then the taxpayer should apply for an Individual Tax Number (ITN) and use the ITN to file taxes. Corporations or individual GST/HST registrants also receive a Business Number (BN) at the time of incorporation/registration.

The tax system in the United Kingdom, in contrast, is primarily a “Pay As You Earn” (PAYE) system, where most taxpayers need not file their own taxes every year. There are different authorities involved in administrating the UK tax laws. However, this article focuses primarily on the HM Revenue and Customs (HMRC), the main taxing authority in the UK. The UK requires a taxpayer to have a Tax Identification Number (TIN) to file taxes. Most people can request a National Insurance Number (NINO) from the HMRC and use the NINO for tax identification. However, if a taxpayer needs to file a self-assessment tax return in the UK, the taxpayer will receive a Unique Taxpayer Reference (UTR). Businesses also receive a Company Registration Number at the time of incorporation. Value-Added Tax (VAT) registrants also receives a VAT number at the time of their registration with the HMRC.

The general principles of tax law, however, apply both in Canada and the UK, despite the differences in the two systems. For example, tax residents are taxed on their worldwide income while non-residents need not report foreign income. When a taxpayer can be considered a tax resident in both Canada and the UK, the tie-breaker rules governed by the Convention Between the Government of Canada and the Government of the United Kingdom of Great Britain and Northern Ireland (“Canada-UK Tax Treaty”), will then be triggered. For more discussion on the tie-breaker rules, please refer to our previous article here: Considering A Move To Canada? Income Tax For Permanent Residence For Wealthy Immigrants.

Voluntary Disclosure Programs In The UK

In part II of the series, we introduced the voluntary disclosure program in Canada. This section overviews the voluntary disclosure program in the UK, followed by a high-level comparison between the UK and Canadian voluntary disclosure programs.

There are three different ways a UK taxpayer can make a disclosure to the HMRC, including using the contractual disclosure facility, the Coronavirus Job Retention Scheme grants repayment program, and the digital disclosure service.

The contractual disclosure facility is similar to the Limited Program in the Canadian voluntary disclosure program, which is for taxpayers who deliberately avoided taxes, causing a loss to the taxing authorities. The contractual disclosure facility, unsurprisingly, also provides similar relief, by providing UK taxpayers with immunity from criminal investigation, in connection with the disclosed information.

The Coronavirus Job Retention Scheme grants repayment program is a temporary voluntary disclosure program that allows UK employers who have claimed too much through the Coronavirus Job Retention Scheme to voluntarily pay back the excess amount. By making voluntary repayment, the applicable penalties may be waived and innocent errors in the prior claims are effectively forgiven. Canada currently does not have a similar relief program although similar benefits were paid to employers during the COVID-19 Pandemic. Instead, the Canada Revenue Agency allocates its resources to actively audit and review employers’ claims without providing any types of relief program.

The digital disclosure service in the UK resembles the General Program under the Canadian voluntary disclosure program, which applies to most taxpayers. However, although Canada does allow disclosure related to GST/HST via the General Program, the digital disclosure service cannot be used for VAT related errors. An additional requirement is that if the taxpayer has income, assets, or gains outside the UK, the taxpayer is required to use the worldwide disclosure facility. The Canadian voluntary disclosure program, in contrast, does not have such additional requirement. Another difference between the two programs is that the Canadian VDP requires an application to include information that is at least one year due, while the UK digital disclosure service allows taxpayers to apply as soon as possible and requires the taxpayer to make such disclosure within 90 days after the taxpayer receives a disclosure reference number.

Nevertheless, the UK digital disclosure service shares similar features as the General Program in Canada VDP. First, the disclosure must be complete, including all years with non-compliance. Second, a payment of estimated taxes owing should be made or a payment plan request should be included in the disclosure application. Third, after a disclosure is accepted, some form of relief is permitted. Last but not least, applicants have the right to seek professional and legal advice when preparing a voluntary-disclosure application.

Pro Tax Tips – Disclosing Your UK Income And Assets In A Canadian Voluntary Disclosure Application

Unlike the UK voluntary disclosure program, there is no additional program requirements when it comes to your foreign income and assets. However, there are specific forms that you may need to include in your Canadian voluntary-disclosure application. For example, if you have a rental property in UK that worths more than $100,000 CAD, you likely need to include a T1135 form for each year you have owned the property in your Canadian voluntary-disclosure application.

Some types of income that are exempted from tax in the UK, such as UK-based pensions, may be taxable in Canada. If you have unreported UK pension or other income that may be subjected to Canadian taxes, you may qualify for a voluntary-disclosure application.

If you are thinking about submitting a Canadian voluntary-disclosure application or if you are concerned about your tax reporting obligations in Canada regarding foreign income and assets, you should engage with one of our expert tax lawyers. Our knowledgeable Canadian tax lawyers can provide legal advice specific to your case.


Can I File Voluntary-Disclosure Applications In Both UK And Canada?

From the CRA’s perspective, there is no restriction against taxpayers who may have tax filing obligations in foreign countries. Whether you will need to file a voluntary-disclosure application in both countries depends on the non-compliance issues to be disclosed. Our experienced Canadian tax lawyers can assist you with any questions regarding the Canadian voluntary disclosure program. If you suspect that you may need to file a voluntary-disclosure application in the UK, we recommend that you speak with a licensed tax professional or lawyer in the UK.

What Does Immunity From Criminal Prosecution Entail If My Voluntary-Disclosure Application Is Accepted?

In Canada, once a voluntary-disclosure application is accepted, whether it is under the General Program, the Limited Program, or the Wash Transaction Category, the applicant is provided with immunity from criminal prosecution in connection with the disclosure included in the application. However, this does not prevent the CRA from criminally prosecuting the applicant regarding other undisclosed matters. As a result, it is highly recommended that a taxpayer should stay compliant with the tax law once a voluntary-disclosure application is filed and accepted in Canada.

Although the HMRC also offers taxpayers immunity from criminal prosecution for tax offences, in return for a full disclosure of non-compliance, the UK voluntary disclosure programs impose additional conditions on the offered immunity to an applicant. For example, lack of cooperation from the applicant, after a voluntary-disclosure application has been submitted, may result in the withdrawal of criminal immunity. In addition, the HMRC may choose to carry out a civil investigation, rather than criminal investigation, in appropriate circumstances. If you have concerns regarding criminal prosecution and investigations on tax offences in the UK, we recommend that you speak with a licensed tax professional or lawyer in the UK

Disclaimer: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.

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